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XYZ Corporation has a zero-coupon and a 5% coupon bonds with the same 7-year maturities and the $1,000 par values. Which of the following is
XYZ Corporation has a zero-coupon and a 5% coupon bonds with the same 7-year maturities and the $1,000 par values. Which of the following is true?
A. The zero-coupon bond must be more expensive because of its greater capital gain potential.
B. Rational investors will prefer the zero-coupon bond because it has no reinvestment risk.
C. Both bonds must sell for the same price.
D. Rational investors will prefer the 5% bond because it pays more interest.
E. The zero-coupon bond must be cheaper.
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